We all know we’re supposed to have some money set aside for emergencies.
Unfortunately, finding the money to put into an emergency fund can be difficult. In fact, last year the American Psychological Association pointed out that the number one stressor for people is money.
On top of that, there are reports that the rebounding economy is leaving some folks behind. Even though many stories and statistics proclaim recovery.
No wonder people feel like they can’t figure out how to save money on a tight budget.
However, if you feel totally broke but still want to start a savings habit, it’s not completely impossible.
Why start an emergency fund?
Your emergency fund can help you weather financial setbacks that can turn into real problems later.
Car repairs are typical expenses covered by an emergency fund. I remember one time doing the math for one of them. Did I have enough for a $300 car repair? Not really. So I had to ask myself a few tough questions.
Do I ignore the problem and try to save up? What if that sort of minor issue morphs into a major issue that costs even more by the time I can address it? On the other hand, I’ve just paid down my credit card, and there’s just enough room now to charge the repair.
An emergency fund helps alleviate some of this problem. If you need a $300 car repair, and you have $200 in your emergency fund, you can look for other ways to get that $100. Having an emergency fund makes that gap a little easier to manage.
Building your emergency fund over time makes sense as well. You may even be able to amass two or three weeks (or months) of expenses when you spend enough time saving. This can come in handy if your hours are cut at work or you’re unexpectedly unemployed.
How to save your money
Even if you’re broke, you can still start saving. It’s not always easy to figure out how to save your money, but it is possible. Here are five steps for how to save money when you’re broke:
1. Open an account for savings
The first step is to open an account designated for saving. Just opening an account can help you get in the right mindset for saving.
Look for a financial institution that doesn’t require an account minimum or charge various fees. Many small community banks or credit unions offer savings accounts free of fees.
And while there are lots of places to keep your emergency fund, consider starting with a plain vanilla savings account. No need to get fancy from the get-go.
2. Start small
Many of us may think we don’t have enough money available to set aside to make saving it worth it.
However, you can learn how to save your money even when you’re broke. Any amount is worth putting in an emergency fund. The habit is the important thing.
If you can only set aside one dollar each day, that’s fine. You can put a dollar in a jar each day, and at the end of two weeks or a month, deposit it in the bank. It may seem like a small thing, but the mindset you develop is powerful.
Another strategy is to use the 52-week challenge. During the first week of the year, you set aside a dollar. The next week, you set aside two dollars. You get the idea. By the end of the year, you should have $1,378 in your emergency fund.
The idea is to get in the habit of looking for more ways to save over time. And, keep up with the habit. As your financial situation improves, you can boost your savings as well.
3. Make it automatic
I actually don’t like remembering to transfer money into another account. Or, collecting it to bring to the bank later.
For me, it’s all about the automation. Out of sight, out of mind — and growing my emergency fund over time.
Make it automatic by talking to your employer and seeing if you can have a portion of your paycheck automatically deposited into your savings account. Or, if that’s not an option, set up an automatic transfer each month. Just make sure you coordinate it with your pay day and when your other bills are due.
Another way to make it automatic is to use a savings app like Dobot. These kinds of apps monitor your income and spending patterns. They can also withdraw a small amount of money at a time. Look for an app that guarantees it won’t overdraw your account.
Once you get used to not having the money available to you, you might be surprised at how well you can do without it.
4. Cut more of your spending
Take a look at your spending plan. Are there areas where you can cut back?
Reducing your power consumption can help you save a few bucks on your utilities. So can brown bagging it and taking your lunch to work. Or, cutting entertainment subscriptions like cable.
We all know the drill when it comes to cutting down spending. Just remember to start small with little moves like these.
5. Make more money
Of course, there’s only so much you can cut. Eventually, you’ll reach a point where you just can’t squeeze one more penny out of your budget.
This is when you determine whether or not you might be able to make a little extra money instead.
A good way to start making extra money is by taking a seasonal job or starting a side gig. If you are following a savings plan like the one from Dave Ramsey, you can get to the point of $1,000 in your emergency fund and then cut back on the extra work.
Not everyone has the time or ability to take on more work. But if it’s an option for you, it can be one way to kickstart your emergency fund when you don’t have any extra money to spare.
Do you need financial help?
If you are in a place where you don’t have a dollar a week to spare, you might need financial help.
Consider reaching out to your support system or family for financial aid. Although it may be difficult or uncomfortable at first, there’s no shame in asking for help when you need it the most.
There are also community resources that you might have access to. Accessing local food pantries can help you save money on food. That allows you to then turn around and put that money in your emergency fund instead.
Community programs also often offer financial counselors that can help you review your finances. Then, they can make suggestions for improving your situation.
Additionally, many cities have programs designed to help you pay your utilities. And many religious congregations offer financial aid to members.
Sometimes the help you need isn’t even financial.
I often help my sister by watching her kids so she can work without paying for daycare. My parents took me to the store to buy my first two weeks’ of food and some cleaning supplies after my divorce. They didn’t give me money, but it helped free up my own resources.
Every little bit helps
At the end of the day, your emergency fund is all about helping you manage unexpected (and often unpleasant) financial situations. That’s why it’s so important to access and build upon that mindset of saving.
By learning how to save your money (even when it seems like it’s impossible), you’re one step closer towards peace of mind and financial stability when times get tough.
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